At the end of 2017, it was smooth sailing in Towerland. The specter of the T-Mobile/Sprint deal had been vanquished, the leasing outlook was clear as day (even Sprint – Sprint!– was joining the party), interest rates remained subdued, and the stocks were capping off a great year.
Suffice it to say that the first third of 2018 has been a fair bit messier. On the domestic leasing front, specifically with respect to AT&T and its FirstNet/AWS-4/WCS projects, towercos have issued guidance that is more conservative than most anticipated, both in terms of cadence andmonetization potential. The precise timing isn’t that relevant from a long-term valuation perspective, but the cumulative expected increase in revenue is.
Overseas, the risks that had built up in American Tower’s India business finally came to a head, with anticipated carrier consolidation-related churn starting to whack results. Despite management’s stiff upper lip and vision of a more prosperous future, the resolution of AmericanTower’s relationship with Tata is not accounted for in the company’s churn forecast. Most investors seem to treat that revenue stream as a perpetuity. It is not.
And, of course, T-Mobile and Sprint announced their intention to merge; a deal, if successfully concluded, would be a negative for the Towers, at least in the medium-term (if consolidation stimulated the entry of a new fourth player, it could be modestly positive over the long-term).
American Tower’s Q1 results contain a number of puts and takes. The company bumped up its U.S. growth outlook to 6.5 percent, and also increased LatAm and EMEA expectations, but the pull-forward of churn in India drove cuts to full year revenue and EBITDA expectations. Pulling other levers saved 2018 AFFO guidance, and total India churn forecasts are unchanged relative to last quarter.
Nick Del Deo is an analyst for MoffettNathanson. His current coverage includes: American Tower (AMT), Crown Castle (CCI), SBA Communications (SBAC), CenturyLink (CTL), Zayo Group (ZAYO), Cogent Communications (CCOI), Equinix (EQIX), Digital Realty (DLR), CoreSite Realty (COR), CyrusOne (CONE), QTS Realty (QTS).
For more analysis from Del Deo, go to www.moffettnathanson.com.